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The neighbours have also noted a the number of used cars regularly outside the premises.

"They're always getting cars in, ripping parts off them and then putting them out on the street for sale for a few hundred to a thousand dollars," he said.

Police talk to neighbours outside a property in Through St, South Grafton, where police allege a shot was fired this morning. Two men have been taken into custody at another address in South Grafton.Tim Howard

UPDATE 11.15am: Police are searching a house and a car in Cowan St, South Grafton, where they believe a weapon used to fire a shot at another South Grafton residence this morning is located.

Acting Coffs Clarence Police Area Commander Superintendent Peter McKenna said the men had been arrested after a search warrant was issued to enter the house.

Detectives brought out some items from the house, but nothing that looked like a weapon.

A witness who lives next door to the house where the shot was fired, said he was woken by a disturbance about 6am.

"I could hear a woman sort of pleading," he said. "I didn't hear a shot, but she was saying 'don't do it, don't do it.'.

"There's always stuff happening there."

Police said no-one was injured in the incident.

Police tape marks where a bullet has believed to have struck a wall of a house in Through St, South Grafton.Tim Howard

EARLIER: POLICE have arrested two men after a shot was fired in South Grafton this morning.

The shot was fired about 6am into the wall of a house in Through St.

After 9am police arrested two men at an address in Cowan St.

Police said the occupants of the house and neighbours have been helping them with inquiries.

Superintendent Peter McKenna is on his way from Coffs Harbour to take charge of the operation.

The scene in South Grafton where a shot was fired this morning.Tim Howard